I have been into Financial Planning and blogging for the last 13 years. In this journey, I am lucky enough to meet lot of investors, my clients, friends, well-wishers and relatives. I have observed that each individual’s/family’s financial situations, financial behavior and attitude towards investments risk are very unique and different to each other. May be this is the reason why I have always believed that there is no ‘‘one-size-fits-all” financial plan/investment plan. That is why it is called as PERSONAL Finance. It is your finances.
In all these years, I have observed (observing too) one common thing from all these meetings i.e. most of the investors are committing same and common PERSONAL FINANCE Mistakes.
In this post I have tried to list down the most common MONEY mistakes that many of us commit. Some of these mistakes that people make are out of ignorance and some are out of pure negligence.
These are based on my work experience and observations. Please free to share your comments on my views.
Related article : 5 Personal Financial Mistakes that I have committed…!
The most common Personal Finance mistakes
Below is the comprehensive list of the most common money mistakes that people generally do!
- Buying Life Insurance in minor children’s names.
- Including parents in your family floater health insurance plan (The premium for family floater is based on the age of the oldest member.)
- Buying a life insurance plan without even having a clear idea about the type of policy, extent of coverage and its benefits.
- Purchasing a life insurance plan on 31st March (last minute rush) for the sake of saving on some taxes.
- Blindly believing the illustrations given by the insurance intermediaries and not comparing them with other alternative options.
- Giving more importance to a money-back or endowment plan than to a term life insurance plan.
- Buying a life insurance policy under pressure from your own family member(s) or friends.
- Not buying a term life plan and/or health insurance plan at a young age. (The younger you are when you buy a life insurance policy, the less you’ll pay. The healthier you are, the cheaper and easier it is to get coverage.)
- Ignoring to buy a standalone health insurance plan because you already have an employer’s group medical insurance cover.
- Missing insurance premium payment due dates. Failing to keep your contact details UpToDate with your insurer.
- Not declaring proper nominations on your insurance policies and investments.
- Allowing your insurer agent to fill the insurance proposal form (insurance application form) completely.
- Not being honest enough in disclosing your personal details and health history in insurance policies.
- Not informing your family members about your life insurance policies and health insurance policies (or about your investments).
- Neglecting to take home insurance plan and failing to protect your biggest investment i.e., your HOME.
- Chasing Returns on the investments allocated to an Emergency Fund. Taking undue risk on the funds ear-marked for Contingencies.
- Assuming that all fixed income securities are risk-free or have lower risk.
- Investing heavily in one investment option or security. Maintaining no diversification or over diversification with respect to investments.
- Investing in Stocks based on tips or just because your neighbor has made quick bucks in the recent market rally.
- Investing lot of time and energy to track your stock investment portfolio (where your equity portfolio is just 0.01% of your total investment portfolio / networth).
- Buying digital and electronic items whenever there are new models available and by taking personal loans or through credit card. Going into Debt for Luxury Items and not worrying about your credit score.
- Taking a home loan just to avail income tax benefits.
- Rolling your credit card payments and paying only minimum due amounts.
- Having no idea about where your money is being spent!
- Having no clear-cut investment objectives and financial goals.
- Investing in unregulated Chit Fund just because your aunt runs a chit fund in your native town.
- Not knowing the importance and effects of compounding, inflation, taxes and time value of money.
- Not saving until Retirement. Waiting to save for retirement as its too early to save for it.
- Believing that your kids will take care of you during your retirement phase and becoming completely dependent on them.
- Investing in New Fund Offers of Mutual Funds as you get the units at face Value (low NAV).
- Failing to create additional sources of income along with your active income. Not taking advantage of free time to earn extra money.
- Withdrawing monies from long-term saving and retirement products like Public Provident Fund, Employees Provident Fund or National Pension Scheme (for trivial purposes).
- Investing in unregulated Public Deposit Schemes.
- Trusting unusual discounts and (sale) online offers and falling prey to Scams.
- Investing in products based on their names/nomenclature without doing proper research or suitability study (Child plans, Pension plan, Retirement plan etc.,)
- Going all out to invest in GUARENTEED income investment plans 🙂
- Being ignorant about the basic Taxation laws and inability to claim certain tax deductions (though you are eligible).
- Claiming incorrect income tax deductions (or) mis-reporting incomes to the IT department.
- Hesitating to take an expert help even when it is really required (legal/tax/financial planning purposes).
- Having high expectations w.r.t return on investment(s) and factoring in unrealistic assumptions in investment plan calculations.
- Prepaying low-cost loans before clearing high-cost loans.
- Spending lot of money on ceremonies like marriages, birthday parties and functions, just to impress your distant relatives 🙂
- Investing in Gold Jewelry without taking proper invoice/bills.
- Churning investment portfolio too often and even when it is not required.
- Always waiting for the right time to invest!
- Including your self-occupied house in net worth and assuming that you belong to an HNI category (High Net-worth Individual).
- Overleveraging yourself to acquire properties and getting into a ‘liquidity trap’ (or) using your cash for acquiring lot of unproductive assets and getting into an ‘Asset rich and cash poor‘ situation.
- Venturing into complex and risky products like options and futures, commodity trading and Forex trading without understanding the risks associated with them.
- Investing in Penny stocks just because they are available at a very low price.
- Investing heavily in Fixed income options even if you can afford (or) if you have to take risks.
- Investing in Company Fixed Deposits just because they offer very high interest rate compared to bank or post office time deposits.
- Increasing your spending when your income goes up. Creating a NEED out of a WANT!
- Staying invested in risky investments till the last year of your financial goal.
- Signing on blank bond papers and getting into legal troubles later on in the future (I have literally seen quite a few cases like this).
- Assuming ‘Law will take its own course’ and not writing a WILL.
Related article : 5 Personal Financial Mistakes that I have committed…!
It is absolutely fine to commit mistakes in your personal as well as financial life. As most of the Personal Finance, investment or money lessons can be learnt only by experience. But once you learn, try your best not to repeat the same mistakes again. Write down the mistakes that you have committed and don’t repeat them.
You can also learn from the money mistakes made by your relatives or friends and try not to commit the same when you face a similar situation.
(Post first published on : 27-Sep-2023)